The unstable political conditions in Pakistan are now taking a toll on the markets with Pakistan Stock Exchange getting hammered last month. This time around, it foreign exchange market that got adversely affected by the aftermath of political volatility. Pakistan rupee collapsed by 3.25% as compared to dollar in just two hours yesterday, the biggest drop in the value of rupee ever suffered on a single trading day in the last nine years.
The sudden drop in the currency value was followed by the spread of immediate panic in the foreign currency market due to uncertainties prevailing in the political environment, as Maryam Nawaz was called over by the JIT for investigations. Finance Minister Ishaq Dar had ensured dealers that the government would be maintaining the value of dollar, but this sudden decrease in the value has created confusion in the market.
Ishaq Dar said that the decline in the value of rupee as compared to dollar was “artificial” weakness of the currency. He said that the political instability was being exploited by certain lenders, entities, and individuals in order to make money in the foreign exchange market. Pakistan Stock Exchange lost 1,900 points on Monday as Nawaz Sharif’s son appeared before the JIT team.
Dar has also called up a meeting of presidents of all the banks in order to review the current situation. Eyes are on State Bank of Pakistan (SBP) now that said “the exchange rate is aligned with the economic fundamentals.” The central bank said that deficit in the current account has been increasing for quite some time now. The central bank vows to continue to monitor the situation in the financial markets of the company to ensure stability.
The devaluation in rupee was expected by many currency dealers as they believe that rupee had been stable for quite some time now. Ishaq Dar has been a supporting strong rupee in value against dollar and has been making efforts to keep it stable. But this strong and stable rupee has been creating problems in the country for exporters.
Imports in the country are increasing while exports are going down rapidly, increasing the trade deficit to $23 billion. Pakistani exporters want the currency to depreciate as it’s hurting their competitiveness due to overvalued rupee. Exporters say that Pakistan should take lesson from other regional countries who have been devaluing their currencies in order to boost their exports.